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Saturday, Nov 12, 2005


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`Second round of LAF soon'
No deregulation of savings account rates: Y.V. Reddy

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The RBI Governor, Dr Y.V. Reddy, flanked by Mr V. Sridar (left), Chairman and Managing Director, UCO Bank, and Mr V.P. Shetty, Chairman and Managing Director, IDBI and Deputy Chairman, Indian Banks' Association, arriving at the BANCON 2005 conference in Kolkata on Friday. - A. Roy Chowdhury

Kolkata , Nov. 11

IN an effort to check the current liquidity problems in the market, the Reserve Bank of India will soon introduce a second round of liquidity adjustment facility (LAF).

This was announced by Dr Y.V. Reddy, Governor of the RBI. He was talking to reporters after addressing the senior executives of the Indian banking industry at BANCON 2005.

According to him, there is a distinction between structural and frictional liquidity. "After the Mid-Term Review there are no problems in structural liquidity but problems are there in frictional liquidity," he said.

It may be noted that the apex bank carries out daily reverse repurchase and repurchase auctions to add or reduce cash from the total national banking system. Currently, the short-term liquidity position is reported to be tight.

The cash surpluses have fallen over the last few weeks because of heavy withdrawals by corporate houses. As a corrective step, Dr Reddy said the RBI would introduce a second round of LAF shortly.

He also ruled out any liberalisation of the administered interest mechanism of saving accounts. According to him, the view of the majority of the bankers is taken and it is always a "unanimous decision".

Earlier in his address, he spoke of incentivising the regional rural banks (RRBs), which have been consistently doing "a good work". These RRBs will be empowered to deal with foreign exchange and start treasury operations.

To become more approachable to the common masses, the apex bank is considering posting its circulars and notifications in local languages on its Web site. For this, the RBI has started discussions with State Governments.

The RBI Governor urged the banks to develop better and stronger relationships with the customers. Elaborating on this, he said better customer service means more coverage with wider range of products and at a reasonable cost.

In this context, he mentioned that two banks have registered more than Rs 100 crore of income from customers who failed to maintain the minimum balance levels of their respective accounts.

"There must be some inherent problem in the relationship between the customer and the bank, otherwise why would the customer not maintain the minimum balance?" he asked.

While asking the banks to be more customer-friendly and transparent, he mentioned about a recent development in Gujarat where the State Government has issued a circular detailing the dos and don'ts of organisations engaged in credit card operations.

He also urged the banks to go for mass banking rather class banking. "It has been found that resources are being collected from the middle and poor sections of the society to meet the needs of class banking," he said.

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